strategic positioning chapter 2. strategic service vision target market –may result in different...

Strategic Positioning

Chapter 2

Strategic Service Vision

• Target market– May result in different treatment of different

customers– All employees must understand target market

• Service concept– Why customers choose a particular firm

• Motivation can be emotional or physical

Chapter 2 - Strategic Positioning 1


• Operating strategy– How should the firm be structured to produce the

service concept?– How should resources be allocated?

• Service delivery system– Specific decisions made by the firm regarding

personnel, procedures, equipment, capacity, facilities, etc.

2Chapter 2 - Strategic Positioning


• Ideally, a service delivery system should support the operating strategy, which should support the service concept, which supports the target market

Target Market

Service Concept

Operating Strategy

Service Delivery System


Capacity Strategies

• Capacity issues in services are:– More complex than in manufacturing

• Timing may be important, for example if there are peaks in demand at different times of day

– More critical than in manufacturing• Often no backorders can occur• Excess capacity may be perishable

– An imbalance in supply and demand can result in lost sales or idle employees


Capacity Strategies• Provide: Ensure sufficient capacity at all

times– High quality/high cost; greater amount of idle time

for employees

• Match: Change capacity as needed– Balance quality/cost; part-time workers

• Influence: Alter demand patterns to fit firm capacity– Pricing, marketing and appointment systems

• Control: Maximize capacity utilization– Compete on cost by driving idle time to zero


Techniques for managing capacity

• Work-shift scheduling• Increased customer participation• Adjustable (surge) capacity• Shared capacity• Partitioned demand• Price incentives for and promotion of off-peak

demand• Development of complementary services• Yield management


Retail Design Strategies

• Store sizes have been increasing over the last decade– Supermarkets:

• 50K sq. ft. now vs. 20K in the 1980s• 40,000 SKUs vs. 6,000 in the 1980s

– WalMarts• 200K sq. ft. vs. 70K in the 1980s


Why larger stores?

• Marketing Motivation– Increased revenue/sq. ft. due to a greater pull of

customers– “One stop shopping” for dual income families

• Grocery stores have banks, pharmacies, flowers, etc.

• Operational Motivation– Fewer employees per customer are required for a

given service quality.– Lower inventory carrying costs and distribution

costs


An Alternative: A Small Store Strategy• Managing stores as a network is critical

– Blanket a given geographical area– Multiple locations reduce travel time for customers– Small stores reduce shopping times– Distribution costs are low because stores are

close to one another– Labor can move from location to location– Flexible job descriptions reduce idle time


Managing for Growth

Multi-site Service Firm Life Cycle

Entrepreneurial Multi-siteRationalization

Growth Maturity Decline/Regeneration


Managing Growth – Skill Sets

Entrepreneurial Multi-site rationalization

Growth Maturity Decline/ Regeneration

Charismatic leaderLocal marketing and PRInnovation and development of service strategyEmployees typically underpaid with little stability

Selection of dominant paradigm for marketing, operations and HRStandardization or procedures

Operations and design are already setSell concept to consumer and managerial audiencesWider scale advertising

Maintaining market position and awareness and keeping concept “fresh”Maintaining standards and operating controlKeeping employees motivated

Revising service concept and implementing revisions over a large networkRequires charismatic leader


Growth Strategies

• Industry Roll-Ups– Use stock to buy up dozens of small firms in a

fragmented industry – Gain synergies when once-competing firms share

facilities, supplies, marketing expenses and operational expertise


Franchising

• A self-financing growth strategy– Franchisees pay an up-front fee and a percentage

of gross revenue

• Can limit profitability because a large portion of the profits go to the franchisee– Firms may buy back mature franchises

• Common in international expansion – Bypass “ethical walls”/US Foreign Corrupt

Practices Act


Challenges of Franchising

• Channel conflict– For example, retail outlets may oppose the

introduction of on-line channels

• Operational control issues– Franchisees may oppose changes initiated at the

firm level– Franchisers cannot dictate retail prices or require

that franchisees purchase supplies from the franchiser

• Franchisers providing on-going value


Franchising Agreements• Passive ownership

– Franchisees are not actively involved in the operations of the franchise

• Master franchise agreements– Allows an individual or corporate group other than

the firm to award franchises

• Fee structure– Average of $20,000 fee + 7% royalties– Can affect the ability to monitor free-riders or

brand shirkers

• Geographic protection for franchisees


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